Bellow are common questions with their answers we get from our potential clients. Please read and if you have questions which are not covered here please contact me.
Q: What satisfies the “property management” criteria?
A: Strong property management is considered any management company that manages multiple multifamily properties, has a verifiable presence in the subject market, and has a dedicated staff to proactively manage their properties.
Q: We have limited experience with owning Multifamily properties in the U.S. Why do we need an “asset manager”?
A: Asset management is above and beyond property management and is required when the borrower has limited experience in owning CRE or experience in the subject market. Asset management provides the borrower the experience and means of implementing a sound business strategy. Example of this can include how to increase cash flow, how to reduce expenses, and/or how to care for the property in a proactive manner. In short, owning a MultiFamily property requires more than collecting rents and evicting tenants. Without the proven experience to successfully operate a MF property our lender requires that you engage an asset manager who has the experience to run the property successfully. This service can often be provided by larger management companies.
Q: Does SFD (Single Family Dwelling) management expertise count for multifamily?
A: SFD management does not count for our purposes.
Q: I have a few years experience owning and managing SFD. Does that satisfy the “landlord experience required” criteria?
A: Unfortunately, the SFD experience is considered weak in the quest for financing commercial real estate. This is why we enforce the need for a strong management company.
Q: Are there any markets that the lender favors?
A: Yes. For new – or those with limited experience – CRE investors we want you to focus on strong multifamily markets AND insure the subject property is located within a strong sub-market. In general, the most desirable markets are located in coastal states. Please ask if a particular state is one we can help you with.
Q: What are the Tier 1 and Tier 2 markets that this program is available for?
A: Generally the Tier 1 are major cities on the West Coast such as Los Angeles, San Diego, San Francisco, Seattle. East Coast Tier 1 cities are Boston and New York City. Tier 2 are the major cities in Texas: Houston, Dallas, Austin, San Antonio. East Coast and Mid West Tier 2 cities are Orlando, Miami, Tampa, Daytona Beach in Florida; Atlanta, GA; Columbia, SC; Chicago, IL; Indianapolis, IN. West Coast Tier 2 are Portland, OR and Phoenix, AZ. There are other major cities that are not mentioned here so if you have a city in mind please ask me and I’ll be sure to find out for you.
Q: I found highly profitable properties in Ohio and Michigan. Can you help secure financing in those states?
A. Unfortunately these two states are not on our lender’s list at this time.
Q: Are there any managers that have a particularly good reputation in these markets, given management is key?
A: We have relationships with several property managers in Texas, California, and the Southeast. Some of them have been vetted for this program by the lender.
Q: Can you recommend some of your commercial real estate professionals?
A: Yes, however before we refer you to our sources we need to insure that you have the financial capability to qualify for financing for which we’ll ask that you provide us with POF (proof of funds).
Q: I am looking at buying my first commercial property in the U.S. What kind of property should I be looking at?
A: We recommend you look for a Class A-C property in good condition with a high occupancy rate and no need for substantial repairs and/or upgrades. We also require the property be located in an area with high absorption rates and high occupancy levels. Please note, we managed to get this particular lender to look past the fact that this program will be best suited to beginner investors, but in order to overcome the lack of experience the property and its location must be stronger than normal.
Q: What are the DSCR (Debt Service Coverage Ratio) requirements for this program?
A: Minimum 1.25.
Q: What level of reserves should I be prepared with?
A: On a Conventional Loan request you should be prepared to prove two types of reserves in addition to your funds to close. Personal reserves should be a minimum of 24 months P&I (principal and interest) payment on the projected loan. Corporate reserves should be a minimum of 10% of the projected loan amount or $250 per unit, whichever is greater. On a Private Money Loan request it will be evaluated on a case by case. Please note that the larger your reserves are the better your loan submission will look.
Q: What kind of funds are needed to prove your reserve requirement?
A: Liquid funds such as cash, stocks, mutual funds, money markets, Certificate of Deposits, securities accounts. Real Estate equity is not considered liquid thus it cannot be used for reserve purposes. Also, retirement accounts (401K, IRA, etc.) will be discounted.
Q: I have a Home Equity Line of Credit. Can I use funds from my LOC?
A: You may be able to use funds from your LOC provided the line is open and there are no major restrictions that could impair your transaction. Note that if you’re planning to use only funds from a LOC and have no capital of your own, your transaction would be considered weak and you will probably not get approved.
Q: If I liquidated everything I could probably scrape together enough equity to do one deal. Is this a good idea?
A: Scraping together all your assets to close a CRE loan makes it a marginal transaction. You may be better off joining efforts with other investors who have similar goals and are at least as strong financially as you are. Again, we’re trying to offset lack of experience via good management, a good property in a good location, and a strong borrower. We would have little chance of success funding a loan without a financially sound borrower(s).
Q: What are your fees?
A: Our Broker Fee varies between 2% and 3% of the loan amount (depending on the loan amount and complexity of the project) and is due and payable at closing. On a purchase, you must pay the fee at closing out of pocket. On a refinance, providing sufficient equity exists and the LTV allows for it, our fee can be incorporated into the new loan. Please note that your closing costs will be higher than just our fee as they will also include lender and other third party costs (appraisal, title, escrow, etc.) In general, you may want to estimate the costs at 4% – 5% of the loan amount for conventional and bridge financing, 6% – 7% for private money loans.